Measurilosses

ng Expected Credit

for fencminl Assels

.

-
Financial riszels Financial
with a
significent Assets
firena comcoment / a
signfent
Investment in
finey
e
.f
Bunds/Debentures comparat
measured of Amortise
cust or FUTOCI
Rog Short term

Trade
t Receivables .

Li Debtors (incorporalus C :. No
significent
significent fenary cary S
rant
fir .
moment
a

↓
Apply general Apply
approach to depemine Simplifical
ECL approach to ECL
General Approach
---

used
·
Principles/components in the
computative of ECL

Loss Prob
ECL = Pr
of X x
of (f)
Ex sosure given (CAD) (1)
/
et defaul t(1) Defau It Default
(LGD) (PD)
-
EAD)
PV of the lo
--
pr of the l
expected
"Definition of Default : IfRs a does
-
NOT

keem "default" but instead

define the
requires each entr to do based
internal iyriske so

credit
igf policies(g
on

default does not occur later than

90
days past
the due
date)
Definitive of terms :

() EAD : this is the amount that

the distor ores at default .

this the that

(2) LOD : is

lose
percentage
Khom the
you can

debtor de fauts
-

(3) PB : this is the likelihood that the

destor will default on its dest
within a certain period.
↑
*T
Within Kifhim
#
12 months the -
life time
&

q Sport
I
1

of the
da te
financial
instrummt
& The
general approach entails a

three-stage
C
impairment .
model
STAGE DESCRIPTION Compsutation
- basis for ECL

Stage There is AO
significa t --

increase
f

the credit
12-month
in

↳ date
Risk at
Reporting .

ECL .

Credit Riste has

2
increased
Compute
significently
date
life time
at
Reperty
1

ECL

3 Credit is
impaired . Compete
life time
ECL
&Definition
Month ECL

The
portion of lifetime sectual credit
ex
losses that represents He expeeked credit
losses that result
from default
exents on the financial instrument that
period
~

al
possible month
Within
after the Mycorting date
- - -
.
#ife time definition
ECL

Expected credit losses that result

default exents
from all
possible
oxr the expected life of the
financial instrument
.

spott recognise identify

H To

that there is SIC

--
R (ic signfict
--

The finemial
·Ris
rese in Credit

Immont since initial ?

·recognition
When whether there is
assessing should
a SICR
, an
entity
use the
change
in the
probability
of default occurring
one the
 expected life of the financial
instrument I
rather than
changes
in

the loss if the default

were to
occur exidenced
by the
loss
given default(LGD)

Applications of the General Approach

Illustration : Bank hich .

----

internal credit
retry
Bank hid uses
on

lowest credit
of 1 to 10
,
'I'
denotry
denoty highest
risk and '10'
L
credit

risk .

Beule hid considers an increase of

two points the credit scale
rabry
in

as on SICR .

date Bank hid has

At
deporting to two A and
Lancel companies
money ,

. The
B
following info given is .

Credit
reting
Reporky
⑧ Initial
Recognition date
CoA 4 S

E
Co B 2

e
L

aecomputation
#
it the
a
 details
(b) The
following
are

the hor
given regarding
Fu Aand toBi

COA CoB
-
--

· Lean Amount $ $Im $ Im

$1m $Imct
Initial
·
Recognitive at start ofYrl start of
YrI
5 5%
· EIR pa .

Effective intreke] due

exery duccery
end of yr endofyr .

da ke End ffr End of Gr

Reporting
·

North of collateraL $0 $ 0 75m

Ane end
.

75m
-

The und
·
Repayment of of frr5
principal of Ar5
Prob of default
·
0 .
5% WHA
in nexti . months -

Prob of default
·
NIA 20 %
during term of
hocm .
hoss
given
·

default N/A
Over next 12 ?
months
.

hoss
given
·

default W/A ?
over life time (estimatel
to
of Loan
end
occur

of fr2
if there is
a
default)
table below
Required :
fill in the .

Co A ECL /
end of Gr .........

Co B ECh
kz
end
of fr
.

....... -
K Compute of ECL. for CA e

Report dato
,

EAD .

1 our 000 X1 05
-
= 1 , 050 000
, , ,

Tom wo
LGA

Credit Loss
. in 12 months
1
time

PV 262
of Credit loss :
-
500
-250, 000
7
1 .
05

X
X

PD in 12 months . 8 . 005

Prof ECL Es
I a Computation of ECL
for
de
it
is at Reporty
o
at
Assang
interest is
dely paid
und of Yr1 , 1
,
000
,
000x1 05 =
.

our
X

LGB X 5
.

25
--

Credit loss
262 500
estimated To <

occur
end of --

yr2
262500
credit lis
PY of :
- -
<
= 238095
1 052
I

.
 X

Prob of default X 20 %

P of Expected Credit loss

I
9